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tv   [untitled]  CSPAN  April 7, 2010 5:00am-5:30am EDT

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people say simon, we have the resolution authority in the bill. the resolution is requested by secretary guide are supported by the white house. this will allow us to take over and manage the failure and contrac4n@dd's)p,h$sgu$s would be a
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u.s. resolution of 40. it would not apply to the cross border operations of these banks. citigroup does business in about 100 countries, a lehman brothers when it sailed had a 600,000 opened route of contracts in london. the london operation of lehman brothers operated on the basis of money that started on trading day. there was no lawyer on the monday after lehman brothers failed on sunday night. the u.s. government doesn't have the legal rights nor will it ever have the legal right to manage what happens to that subsidiary of lehman brothers or the next equivalent in another country. you can go talk to the g20 deputies. actually you probably can't but i can and i have. and i put it to them like this. they will not allow and agree to a cross border resolution authority which is what would be
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required to apply with the treasury says it is doing to make that work across the world. the g20 will not agree to that. they can't even get one within europe. it's interesting. the imf has been urging the european union and the euro zone that shares a currency, has been pushing them hard to come up the cross border mechanism to deal with the failure of banks within europe that have operations in multiple countries. they haven't done it, they can't do it, they won't do it. countries will not give up their level of sovereignty. they don't trust others to act. they think they will protect themselves and they are right. i've also had the opportunity to bring this up with leading proponents from the private sector. i take every opportunity i can assure you to be made in public particularly with cameras on
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leading thinkers. there are not that many opportunities. they don't come out and talk to me that often. but i did have an opportunity to speak to the head of a big part of one of these global banks. there were no cameras but this is in front of the g20 deputies and this is a very smart person with great credibility and legitimacy of a former regulator as many of these people are. and i said to him explain to me, you are opposing the resolution authority, your boss is pushing the speed and as the magic bullet. as the measure that will end to big to fail. that's what they said. explain to me in front of these experts had all that will help us manage the failure of your bank or another like citigroup. he wasn't from citigroup. and this gentleman to his eternal credit and i think a deep reflection on his honesty said is that the time? i have to go to the airport.
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that was his answer. there is no answer. the resolution of ravee is an illusion and it's a dangerous illusion. if you take that off the table and remove that from the rhetoric you see on the proposals before you and congress you have nothing that would deal with too big to fail. you have measures the would protect consumers. we support in the book. i think elizabeth warren has led the charge on that admirably the past few years and it helped shift a consensus and that is what we need to do now on the too big to fail on the size of the banks, the size of biggest banks shift the consensus. there is no evidence and i mean really no evidence. economies of scale or scope or other social benefits to an increasing banks' scale above $100 billion of total assets and we are talking about banks in the trillions of dollars. actually we can argue how
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compelling the evidence is for social benefits about $10 billion. but above 100 billion there's nothing. there are claims. jamie dimond from jpmorgan chase made this claim to his shareholders this week it's not true. it is flatly not true. and the book goes through this. the book has the evidence. the book has been in the hands for months. of course they got an early copy. i make this presentation to the finance experts. i'm on the board of one of the country's top. i make this presentation of all schools. i talked to lawyers. i talked to the big d.c. law firm at lunch yesterday. i give this talk endlessly. i even said to steven colbert. [laughter] whose question is interesting, his line of questioning wasn't so different from what to here on capitol hill in some quarters. [laughter] but anyway, there is no evidence. none.
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what does it take to change the consensus? what would it take to move the opinion of people like you away from perhaps being a little worried. that is why you're here tonight to be convinced this is an enormous and pressing problem and making the banks smaller is essential? in 1902, teddy roosevelt, the president of the united states, decided to take on number securities, which was a massive monopoly, railroad monopoly created by jpmorgan and some of his colleagues. and when teddy roosevelt did that nobody understood why he was doing it. nobody thought he had a chance. the senate was called the millionaires' club for a reason and actually there was no fury about why this was a good idea. all of the modern antitrust thinking came after roosevelt decided to confront jpmorgan. jpmorgan came to the white
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house. he was upset. and he said if we have done anything wrong with regard to the structure of this monopoly, your man to see my man and we will fix it up. teddy roosevelt and his attorney general, slander knox, said no. we don't want to fix it up. we want to stop the and we are going to go to the supreme court and they did and they 15-for in the supreme court and from the decision came the modern antitrust movement. and by 191210 years later the trough the movement was strong enough, the consensus and the change of consensus was dramatic enough that standard oil was broken up into 35 or 37 pieces. now, standard oil was the lifeblood of the economy, a manufacturing economy,
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transportation economy. that was the fuel of that economy. but people had become convinced because the leadership of teddy roosevelt that while bate could be beautiful in america under some circumstances and it certainly had lots of private benefits, the couple so be dangerous to society. it is a very simple point and roosevelt i think was a very simple and direct thinker on this issue and was just as much concerned by the way about the political implications of these massive trusts, it was the industrial trust and railroad trust that drew his attention. he was just as worried about the political side as the economic side. but the economic side is important, the economic side is the way we did a lot of the theory and practice. let me ask you who in this room -- most of the oil companies but we did very well. they say john rockefeller did very well and the town of
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williamsburg did even better because they rebuild it. i think that he was trying to make up. who in this room would like to recreate the standard oil monopoly? okay at lunch time there was one person. we've got nobody now. that is an improvement. [laughter] he said he was from the energy industry. of course not. of course it's obvious. it is obvious is intuitive if you let one company control to a substantial almost complete degree oil distribution and even production in this country there would be bad for society. good for the guys who run the company and may be good for the shareholders depending that works out but not good for the united states. that's the basic principle which we structure this economy in the 20th century hentges, ii understand it's always complicated. there is always back-and-forth. i am an economist, i am a dismal and i am cynical.
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you know that. and we make this very clear in the book. but there is no way that it is acceptable for these large banks to operate at this size with this kind of risk profile with this amount of political power. it must stop. and this is sixth banks. that's eight. our proposal, the argument we are having on congress and we will see how many we bring with us to read a lot of people are interested but a lot of people are afraid to read about limiting the power and size of the six banks. that's the blind spot in the legislation. six banks which operate, it is true very much in the interest of the people who control them. we are talking about 700 million people and we won't take them on. we are not ready to take them on.
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andrew jackson fought the second bank of the united states was too powerful in the 1830's and a lot of people felt andrew jackson was crazy. he took a bullet early in his career. they said the latest seeking out of the bullet. the second was a well-run bank, nicholas biddle was a charming character by all accounts. and jackson was struggling to get his point across though he didn't have that much support on capitol hill and even less support once nicholas biddle started to spend freely to encourage people to vote in his direction. but as he fought back, and as nicholas biddle extended the equivalent of the campaign contributions and as little contracted the point that you cannot reena san people began to
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understand jackson was on to something, and this is what jefferson born about. jefferson and hamilton debated these issues at the republic and hamilton was right and jefferson, this is how we started the book and jefferson had a p absolutely correct which is you must fear of the rifle and the entrenchment of a financial aristocracy. that is what jackson faced and prevailed against and that is what to roosevelt faced and largely prevailed. it's also what fdr faced in the 1930's and fixed for 50 years. and i think honestly that is as much as you could hope for. these things do not stay fixed forever. the republican this dimension is a repeat the cycle, repeated confrontation of concentrated financial power and the elected democrats and principled leadership.
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we need to find teddy roosevelt again and have our teddy roosevelt moment. he acted in a preemptive manner. he did not act in the face of a crisis to read he acted because he thought financing had become powerful and dangerous. if you wait i think you will fix the sequentially. but you will fix it after another all of crisis. he will have an fdr and the trial will come in and fix it but why wait? and what if you don't get fdr? this is the experience of other countries when you have a calamity, economic collapse you don't always get sensible leaders coming and you often get chaos or craziness. a lot of the popular anger on this issue a lot of people are angry front left and from right at the very important point. in the book is designed in part to speak to them and help articulate that anger and sensible policy proposals. but it may not happen.
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and then you just have anchor. legitimate anger but unproductive anchor, and all kind of crazy things can happen. in conclusion i just would say that we need to fix it. there are many problems facing the world that are hard to address. in economic terms in terms of ethical terms brough please begin political terms this is not one of those problems. this is a financial system but got out of control. its structure has become dangerous. it must be fixed. if bridges were falling down
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because of a poor design we would fix the design of the bridges. there isn't a country that is big on denial. but we are not doing it because finance is powerful, because the big financial players have a strong degree of ideological@)hs
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>> questions and you're supposed wait for the microphone, front row share. i will do left, right, center. i am a rebalanced -- if you look at the blurbs we even put them in the front to show the whole political spectrum. i do the same thing in the room. in the center to start with. >> yes, i would like -- hello? who else besides you is making this case that is a political figure who is marshalling arguments based on evidence essentially you're a professor speaking with practical experience and who is doing it in the political form other than maybe mr. volcker the reason i ask that question is there is no committee, there is no marshaling of facts in the political forum that is possible for the public to really digest at this point.
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we don't have a present although obama has done remarkably well in certain areas like roosevelt in 1933 who was calling the bankers incompetent, cruel etc so there was no question at that point where the enemy was and that is the way the address it. the case hasn't been made and you were starting to make it in the political forum where you marshal anchor to take action to which you are saying has to be done it hasn't been done. >> i agree. that is why -- the president could do this, no question. he is capable of doing it and i run a website, one of the leading economic blogs in the country called baseline scenario and we followed this and other issues on a daily basis. and i also do this with the we are strong supporters of the
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president on some dimensions but not on this one. even when the financial issues on the consumer protection i think some of what to belatedly but the administration has come to a sensible position and they are pushing hard. and neil wollen gave a speech to weeks ago now they actually took him on. you're spending $1.4 million of a lobbying against financial reform. you have four or five lobbyists per member of congress. you are coming u.s. congress are pushing for measures not in the interest of your membership. it's all being distorted to favor some particular big players and should stop and that is the right thing to say that they are not sitting on the two big to fail and honestly there are politicians out there who i have hopes and expectations i think they are ten to 15 members of the democratic caucus who could potentially depending how the debate goes the next weeks come out with sensible positions. right now there is only one speaking clearly on this issue
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and that is senator ted kaufman of delaware. senator kaufman as you may know is appointed to joe biden's seat and is not running for reelection. he therefore has no fear of any consequence. you should look at his speeches believe he's given three speeches that are remarkable and you might see is just an appointed senator. i can assure you anyone who speaks truth about these issues right now gets attention. larry summers was questioned on the abc weekend show about what senator coffman said he was forced into the position were yet to say he was exactly right. i don't think larry summers is implementing the agenda that he would be comfortable with that is where we have to go and we need to bring more voices out and this debate among financial reform is very important and it's incredibly important that this be positioned so that people can speak clearly and truthfully on this issue and not get it lost in some tactical political game but we will see
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how that plays out. very early. i will take a question on the right and the gentleman in the back and then go to the left. >> i am not an economist -- is this on? when i heard you the other night -- the other day, my mind went back some i think 15 years and i can remember a huge debate that went on when the banks were allowed to become investment companies. i don't know if i have the right and there was a lot of harbingers of doom at that time and it thinks it is of course a lot of what's happened. instead of breaking these companies up, would it have the same purpose to decide retail banking again from the investment banking and allow bank of america to be a retail banker, 3% interest cetera and then be separate from the
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investment and let that be to break up? with the work? >> so this question is often put -- is a good question, in terms of should we go back to glass-steagall that for a long time we call investment banks and a lot of time we called commercial banks and i think the spirit of glass-steagall is right. the spirit is you shouldn't be allowed to play with house money. if you have federally guaranteed deposits in your bank, if you are so big that we have to save you, if you run the payment system in this country you would get an extra level of protection. you shouldn't be allowed to take massive speculative bets. that's the basic idea. i think we need to modernize glass-steagall and apply it and that is what we are proposing in the book so what we are doing is a size cap, hard cap on the size of banks as a percentage of the economy,% of gdp this to the banks should choose whether they want to be classified as a
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boring bank or commercial bank co-payment bank and make it a bit bigger but not that big or if they want to be reckless, not reckless, sorry, risk taking speculative investment bank in which case they have to be smaller. there are two caps, you choose which one you want and then allow the banks to comply in a way the shareholders don't lose dalia relative to the alternatives. so that and i think phyllis is also our interpretation of the principles, not the volcker rules and put forth concrete the principle behind what mr. volcker has been arguing for is completely sound and senator coffin is arguing for that also and other people me pick up on that. think of it like this. if you have the opportunity to go to las vegas with the government of the united states or your brother in law or your dad backing you and observing your losses would to take more or less risk? i would take more. if it goes well you get to keep
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the up side, if it goes back the some one else is going to pay for that. that's good. i like that. it's not a market economy. who cares. it's not fair to your dad or whoever it is. who cares. it's a great opportunity for me. the basic principle and that is part of what went wrong in the 1920's, a part of what fdr fixed and we need to fix it again. a question on the left. the leedy here in the middle. >> two questions. one as what do you think should be done to recreate the antitrust movement while the obama administration is here and you mentioned there is difficulty is to get the g22 agree to help. but what can the u.s. do? another question is assuming
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that economists from the left and right many of them agree with you because they are all advocating on the right to free markets and then on the left regulation. you have some consensus on the left and right. why do you think that there is difficulty in washington with the republicans supposedly at least a segment of them advocated free markets? is it because they are beholden to the larger interest and are not representing that? how do you go about dealing with the fact considering we want to bring together the two sides and this might be possible if it were not for the politicians. >> i take the second question first. why if there is so much support in principal from left and right and center why does it not have more traction? and i think we will get there. right now it is the power of the
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lobby that it's tremendously strong. i think we've had this before teddy roosevelt faced lobbies the were just as strong, different form but nelson aldrich for example who was the dominant force in the senate on these issues in the first decade of 20th century his daughter married john d. rockefeller's son the republican party which was teddy roosevelt's party was very tight with business and i would stress one reason we wrote the book and one reason i give these talks is that the business sector -- it's not just intellectuals and people writing books and arguing that the business sector should take this very seriously. one endorsement we have which is not in the book because it came to the to be included but it's on the website which is
5:26 am but in george david of the united technologies very big company. cindy mize endorsement and speaks a very highly of the book. i would say he understands quite clearly that the financial arrangements we have are not in the interest of the nonfinancial sector and he's absolutely right. we also have people from the hedge fund sector also not so many are willing to speak out because they are free of the consequences. we have people from the other parts of the sector of getting endorsements so i think it will change also you need money. you need people willing to put money into political campaigns and run against this issue and that takes time and the checks and balances of the united states are healthy but it means we don't spend around right away. we take our time and it takes a lot of arguing among ourselves before we decide what is reasonable in this change because the world has changed. so we will get there.
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will we get their fast enough before there's another crisis? i don't know. will we get there at the time there's the joyce lee that opportunity? i don't know. but we will get there. this is related to the creating of the antitrust movement. it's the spirit of the antitrust movement -- remember because the way that antitrust is developed on the company's the concept you have an antitrust are not appropriate to banking so for example there are -- we do have some legislative principles we can relate to for example act of 1994 sets a size cap on the largest banks in the country. no bank can be more than 10% of the deposits. that is pretty low from the antitrust perspective and sensible from the macroprovincial perspective don't put too many eggs in one basket or that one player become too powerful politically. that was the intent. i talked to the people that drafted, that was their intent and sensible. two problems first of all the action since 94 hasn't been in every tell deposits in the
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wholesale which is banks' lending to other banks to read so the retail cap didn't work and secondly there were loopholes of course in the law that regulated sympathetic regulators were allowed things as big as bank of america to be driven through. but the spirit is there and that idea and figuring out if it is the idea of antitrust and spirit of antitrust just like of glass-steagall. we need to figure out how to update and apply and i'm serious. 1902 there was no economic theory that said what teddy roosevelt was doing made sense. now it is obvious to everybody in the room why you wouldn't want one company to run all of the railroads in a big chunk of the country. that kind of economy without the competing needs of transportation. but it wasn't obvious to people than. as we have to shift thinking and we need a lot of hard thinking analysis some of which is technical with an economics and finance and some of which is completely accessible to
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everybody and involves everyone in this room. okay. back to the center. the gentleman in the middle. >> one reason it's difficult for people like us to grapple with the subjects like this is that academics like yourself don't all say the same thing. there was a business schoolfellow on today on the cnbc talking with aaron burr net and he said that it isn't that bad and -- >> david moss. >> yes. >> he questioned the too big to fail issue and said the real issue is how intermixed the organizations are. the enforcement there was some discussion about what needed to be done to improve enforcement it is diff


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